Limitations on Foreign Investments and Equity in the Philippines

NDV Law > Philippine Legal Advice > Uncategorized > Limitations on Foreign Investments and Equity in the Philippines

Foreign investments are encouraged by the Philippine government to fuel economic growth.  Based on data culled from the National Statistical Coordination Board (“NSCB”), the total approved foreign investments in the Philippines for the year 2014 amounted to P186.9 Billion Pesos (or roughly US$4 Billion Dollars). According to the NSCB, in 2014, Japan is the largest foreign investor in the Philippines while the Netherlands and the U.S.A placed second and third respectively. Furthermore, more than half of foreign investments in the year 2014 were intended for the manufacturing industry in the Philippines.

 However, despite the contribution of foreign investments to the Philippine economy, the same is regulated and not absolute.  There are certain professions and industries that disallow foreign equity or limit foreign participation.  These restrictions are found in the Philippine Constitution and various laws.  Such limitations are encapsulated in Foreign Negative Lists.  The most recent Foreign Negative List was enacted in 2018 through Executive Order No. 65 (“EO 65”) which promulgated the Eleventh Regular Foreign Investment Negative List. 

 

Based on EO 65, the limitations on foreign equity are as follows:

 I.  NO FOREIGN EQUITY

 1.  Mass media, except recording and internet business.

2.  Practice of professions, including Radiologic and x-ray technology, Criminology, Law, and Marine deck officers and marine engine officers, subject to the Annex on Professions attached herewith and forming an integral part of this document, indicating the professions where (a) foreigners are allowed to practice in the Philippines subject to reciprocity; and (b) where corporate practice is allowed. Foreigners may teach at higher education levels, provided the subject being taught is not a professional subject (i.e., included in a government board or bar examination).

3.  Retail trade enterprises with paid-up capital of less than US$2,500,000.

4.  Cooperatives.

5.  Organization and operation of private detective, watchmen or security guards agencies.

6.  Small-scale mining.

7.  Utilization of marine resources in archipelagic waters, territorial sea and exclusive economic zone as well as small-scale utilization of natural resources in rivers, lakes, bays and lagoons.

8.  Ownership, operation and management of cockpits.

9.  Manufacture, repair, stockpiling and/or distribution of nuclear weapons.

10.  Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and anti-personnel mines.

11.  Manufacture of firecrackers and other pyrotechnic devices.


II.        UP TO TWENTY-FIVE PERCENT (25%) FOREIGN EQUITY ALLOWED

 12.  Private recruitment, whether for local or overseas employment.

13.  Contracts for the construction of defense-related structures.

 

IV.       UP TO THIRTY PERCENT (30%) FOREIGN EQUITY ALLOWED

 14.  Advertising


V.        UP TO FORTY PERCENT (40%) FOREIGN EQUITY ALLOWED

 15.  Subject to applicable regulatory frameworks, contracts for the construction and repair of locally-funded public works, except:

     a.  Infrastructure/development projects covered in RA No. 7718; and

     b.  Projects which are foreign-funded or assisted and required to undergo international competitive bidding.

16.  Exploration, development and utilization of natural resources.

17.  Ownership of private lands.

18.  Operation of public utilities, except power generation and the supply of electricity to the contestable market and such other like businesses or services not covered by the definition of public utilities.

19.  Educational institutions other than those established by religious groups and mission boards, for foreign diplomatic personnel and their dependents, and other foreign temporary residents, or for short-term high-level skills development that do not form part of the formal education system as defined in Sec. 20 of Batas Pambansa No. 232 (1982).

20.  Culture, production, milling, processing, trading except retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and com and the by-products thereof.

            a.  Contracts for the supply of materials, goods and commodities to government-owned or controlled corporation, company, agency or municipal corporation.

b.  Operation of deep sea commercial finishing vessels.

c.  Ownership of condominium units.

d.  Private radio communications network.

 

LIST B

 FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF SMALL- AND MEDIUM SCALE ENTERPRISES

 UP TO FORTY PERCENT (40%) FOREIGN EQUITY ALLOWED

 1.   Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National Police (PNP) clearance:

a.         Firearms (handguns to shotguns), parts of firearms and ammunition therefor, instruments or implements used or intended to be used in the manufacture of firearms;

b.         Gunpowder;

c.         Dynamite;

d.         Blasting supplies;

e.         Ingredients used in making explosives:

i. Chlorates of potassium and sodium;

ii. Nitrates of ammonium, potassium, sodium barium, copper (l l), lead (l l), calcium and cuprite;

iii. Nitric acid;

iv. Nitrocellulose;

v. Perchlorates of ammonium, potassium and sodium;

vi. Dinitrocellulose;

vii. Glycerol;

viii. Amorphous phosphorus;

ix. Hydrogen peroxide;

x. Strontium nitrate powder;

xi. Toluene; and

f: Telescopic sights, sniper scope and other similar devices.

 However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.

2.   Manufacture, repair, storage and/or distribution of products requiring Department of National Defense (DND) clearance:

a.         Guns and ammunition for warfare;

b.         Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles);

c.         Gunnery, bombing and fire control systems and components;

d.         Guided missiles/missile systems and components;

e.         Tactical aircraft (fixed and rotary-winged), parts and components thereof;

f.          Space vehicles and component systems;

g.         Combat vessels (air, land and naval) and auxiliaries;

h.         Weapons repair and maintenance equipment;

i.          Military communications equipment;

j.          Night vision equipment;

k.         Stimulated coherent radiation devices, components and accessories;

l.          Armament training devices; and

m.        Others as may be determined by the Secretary of the DND.

 

However, the manufacture or repair of these items may be authorized by the Secretary of National Defense to non-Philippine nationals; Provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.

3.         Manufacture and distribution of dangerous drugs.

4.       Sauna and steam bathhouses, massage clinics and other like activities regulated by law because of risks posed to public health and morals, except wellness centers.

5.       All forms of gambling except those covered by investment agreements with PAGCOR.

6.       Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000.

7.       Domestic market enterprises which involve advanced technology or employ at least fifty

(50) direct employees with paid-in equity capital of less than the equivalent of US$100,000.

 

PRACTICE OF PROFESSION

 

  1. A.    Foreigners are allowed to practice the following professions in the Philippines provided that their home country allows Filipinos to be admitted to the practice of these professions:
  • Accountancy
  • Aeronautical engineering
  • Agricultural and biosystems engineering
  • Agriculture
  • Architecture
  • Chemical engineering
  • Chemistry
  • Civil Engineering
  • Customs brokers
  • Dentistry
  • Electrical engineering
  • Electronics engineering
  • Electronics technician
  • Environmental planning
  • Fisheries
  • Forestry
  • Geodetic engineering
  • Geology
  • Guidance and counseling
  • Interior design
  • Landscape architecture
  • Librarianship
  • Master plumbing
  • Mechanical engineering
  • Medical technology
  • Medicine
  • Metallurgical engineering
  • Midwifery
  • Mining engineering
  • Naval architecture
  • Nursing
  • Nutrition and dietetics
  • Optometry
  • Pharmacy
  • Physical and occupational therapy
  • Psychology
  • Real estate service (real estate consultant, real estate appraiser, real estate assessor, real estate broker and real estate salesperson).
  • Respiratory therapy
  • Sanitary engineering
  • Social work
  • Teaching at elementary and secondary levels
  • Veterinary medicine
  • Other professions as may be provided by law or by treaty where the Philippines is a party

 

  1. B.     Corporate practice is allowed in the following professions, subject to the requirements and conditions under the pertinent professional regulatory law:

 

  • Aeronautical engineering
  • Agricultural and biosystems engineering
  • Architecture
  • Chemistry
  • Electronics engineering
  • Environmental planning
  • Forestry
  • Guidance and counseling
  • Interior design
  • Landscape architecture
  • Naval architecture
  • Psychology
  • Real estate service (real estate consultant, real estate appraiser, real estate assessor, real estate broker and real estate salesperson)
  • Sanitary engineering
  • Social work

 

It is always best to consult a corporate lawyer who can give proper advice on foreign equity restrictions and corporate vehicle structures.

 

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